Malawi_000016884848XSmall (2)

African Developments

Apr 8, 2012 • Behavioral Economics, Developing Economies, Economic Debates, Economic History, Economic Thinkers, International Trade and Finance, Macroeconomic Measurement, Regulation, Uncategorized • 114 Views    No Comments

In Malawi, when local newspapers referred to the president as “the big kahuna,” his office threatened a jail sentence if they did not stop. This threat and subsequent events take us straight to Why Nations Fail.

Malawi is a small sliver shaped African nation.  Landlocked, it is sort of tucked into Mozambique, south of Tanzania and east of Zambia. Until recently, with tobacco and tea its major exports, and foreign aid that included Madonna’s $15 million school building project, economic growth touched 7%.

Now though, as its economic woes increase, Malawi remains among the poorest nations in the world. The value of their currency, the kwacha, went down when the world price of tobacco dipped and foreign aid declined. The crisis worsened when the UK froze foreign aid after the British ambassador was kicked out for saying the government was becoming increasingly authoritarian. In addition, Madonna scaled down her school building project to a $300,000 donation to a local NGO. And finally, perhaps creating a succession battle, the 78 year old Malawian president had a fatal heart attack last week.

And that returns us to Why Nations Fail. While there is much more of a Malawian story to be told, even these disparate facts point to basic reasons that certain nations are poor. In Why Nations Fail, economists Daron Acemoglu and James Robinson tell us that economic success does not depend on geography or natural resources, cultural traits or wise economic advice. Instead it is political institutions. “As political institutions influence behavior and incentives in real life, they forge the success or failure of nations.”

Our bottom line: Whether considering foreign aid or our own economy, we might more consistently assess how political institutions are shaping behavior. Or, as Dr. Acemoglu said in an econtalk podcast, “…prosperity is created by incentives, and incentives are created by institutions.”

My Sources: These WSJ articles here and here. Why Nations Fail by Daron Acemoglu and James A. Robinson. You might also enjoy this Thomas Friedman, NY Times Op-Ed on the book and also this econtalk podcast.

Related Posts

« »